Economic Homework
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Homework_1.xlsxSheet1
| MF&T _AD763_SB1 | 15-Jul-20 | NAME: | ||||||||
| DON'T MOVE MATERIAL ON THE PAGE. PUT ANSWERS IN BOXES. YOUR CALCULATION WORK SHOULD GO TO THE RIGHT OF COLUMN O. | ||||||||||
| COMPARATIVE ADVANTAGE | ||||||||||
| 1 | Russia can produce a maximum of | 42 | Software programs and 0 Vineyards, | |||||||
| or else 0 Software programs and a maximum of | 7 | vineyards. | ||||||||
| China can produce a maximum of | 47 | Software programs and 0 Vineyards, | ||||||||
| or else 0 software programs and a maximum of | 141 | vineyards. | ||||||||
| Before trade, Russia is producing and consuming | 4 | Vineyards and | 18 | Software programs. | ||||||
| Before trade, China is producing and consuming | 70.5 | Vineyards and | 23.5 | Software programs. | ||||||
| By deciding on another point of production on its Production Possibility Frontier (PPF) and then trading, each country can make | ||||||||||
| itself and the other one better off, in the sense of having more of at least one good, and no less of either good, than before trade. | ||||||||||
| Pick a production trade plan for each country, consistent with its PPF, that accomplishes this goal of "better off". | ||||||||||
| Russia can do this by producing ____ software programs and ____ vineyards along its PPF, and then importing ____ and exporting _____. | ||||||||||
| China can do this by producing ____ software programs and ____ vineyards along its PPF, and then importing _____ and exporting ______. | ||||||||||
| (In this question, there is a numerical range of answers that are both feasibile and mutually improving. Only such answers are correct.) | ||||||||||
| 1.a | (Write in numerical answer): | Russia Produces | Softwares | |||||||
| (Precision to 2 decimal places. | Russia Produces | Vineyards | ||||||||
| Must be accurate within +/- 2%) | ||||||||||
| 1.b | (Write in numerical answer): | China Produces | Softwares | |||||||
| (Precision to 2 decimal places. | China Produces | Vineyards | ||||||||
| Must be accurate within +/- 2%) | ||||||||||
| (In the following questions, follow the convention on our class exercise: write exports ("gives") as a negative, | ||||||||||
| and imports ("gets") as a positive number.) | ||||||||||
| 1.c | A plan of trade that is mutually improving will specify that | |||||||||
| (Write in numerical answer): | Russia gives (-) / gets (+) | Softwares | ||||||||
| (Must be accurate within +/- 2%) | Russia gives (-) / gets (+) | Vineyards | ||||||||
| 1.d | and the | |||||||||
| (Write in numerical answer): | China gives (-) / gets (+) | Softwares | ||||||||
| (Must be accurate within +/- 2%) | China gives (-) / gets (+) | Vineyards | ||||||||
| 1.e | As a result of mutually improving trade, now | |||||||||
| (Write in numerical answer): | Russia can Consume | Softwares | ||||||||
| (Precision to 2 decimal places. | Russia can Consume | Vineyards | ||||||||
| Must be accurate within +/- 2%) | ||||||||||
| 1.f | As a result of mutually improving trade, now | |||||||||
| (Write in numerical answer): | China can Consume | Softwares | ||||||||
| (Precision to 2 decimal places. | China can Consume | Vineyards | ||||||||
| Must be accurate within +/- 2%) | ||||||||||
| INTERNATIONAL LAABOR MIGRATION | 1 | -1 | ||||||||
| 2_ | A has Labor La = 100, and Marginal Product of Labor (wage) | MPLa = | 77 | -0.7 | *La | |||||
| Country B has Labor Lb = 20, and MPL (wage) of | MPLb = | 36 | -0.2 | *Lb | ||||||
| Which country will export and which will import labor, if both are to be improved? | ||||||||||
| (Before sending, if a country has so much Labor that its MPL is negative if it | ||||||||||
| were to use it all, then assume it stops using it at the point where its MPL = 0.) | ||||||||||
| NOTE: You may find that one country sends so much labor to the other, that it sends more than it has. That's OK; it can be interpreted as | ||||||||||
| hiring Labor from somewhere else (some third country) or retraining and upgrading its own Labor and then sending it to the second country. | ||||||||||
| 2.a | A. Country A will export, and Country B import labor. | (Write in letter A, B, or C): | ||||||||
| B. Country B will export, and Country A import labor. | Answer Letter = | |||||||||
| C. It cannot be determined without more information. | ||||||||||
| 2.b | What is the optimal interest on Labor (MPL) that should be charged, and how much Labor | |||||||||
| should each country employ? | ||||||||||
| Country A should use | Answer: La= | |||||||||
| Country B should use | Answer: Lb= | |||||||||
| Wage w in each country (MPL) should be | Answer: w = MPL = | |||||||||
| (Answers should be accurate to one decimal place, after rounding; i.e., 9.19 is equivalent to 9.20): | ||||||||||
| 2.c | What is the change in total Labor income for both countries? That is, calculate how much the total income of Labor has changed in | |||||||||
| both A and B since the investment/lending took place. (It will probably help to draw a picture and use some geometery.) | ||||||||||
| Gain in Labor income = | ||||||||||
| TARIFFS FOR A SMALL COUNTRY (for purposes of this question, assume Brazil is "small.") | ||||||||||
| 3_ | Brazil 's Producers and Consumers of ethanol-based motors show the following | |||||||||
| Supply and Demand curves: | ||||||||||
| S: P = | 2 | + | 30 | *Q | ||||||
| D: P = | 210 | - | 9 | *D | ||||||
| 3.a | At competitive equilibrium, find the Total, Consumer, and Producer | CES* = | ||||||||
| Economic Surplus for Brazil . | PES* = | |||||||||
| 3.b | China produces equally good ethanol motors at a price of Pw = | $ 81.00 | CES** = | |||||||
| If imported, what is the new Consumer and Producer Economic Surplus | PES** = | |||||||||
| for Brazil ? Assume no tariffs. | ||||||||||
| 3.c | Brazilan net makers get a tariff of | $ 40 | per ethanol motor. | |||||||
| Calculate the new Consumer and Producer Economic Surplus, plus | CES' = | |||||||||
| the revenue their Government will collect from the tariff, and the | PES' = | |||||||||
| resulting Dead Weight Loss. (Here we will assume that Brazil is a | Gov' = | |||||||||
| 'small' country in economic terms, and cannot effect the China price.) | DWL' = | |||||||||
| 3.d | Which political argument is more likely to benefit Brazil in the long run? Say the following argumemts | |||||||||
| have been made by Brazilan Mosquito ethanol motor producers, so their government will keep protecting | ||||||||||
| them with a tariff. | ||||||||||
| A. | Brazil has fewer people so it's not fair that for it to compete with a larger country like China. | |||||||||
| B. | Taxing imports is the best way for the Brazilian government to raise tax revenues. | |||||||||
| C. | Brazil is the largest country in Latin America, with a large internal market, and one of the biggest sugar | |||||||||
| industries in the world. So there are large economies of scale to be exploited with tariff protection. | ||||||||||
| Mark A, B, or C: | ||||||||||
| TARIFFS FOR A LARGE COUNTRY | ||||||||||
| 4.a | US and Chinese companies make robots to replace human workers. | |||||||||
| Supply & Demand equations for these in the US and China are, respectively: | ||||||||||
| Sus: P = | 2 | + | 45 | *Q | ||||||
| Dus: P = | 48000 | - | 90 | *D | ||||||
| Sc: P = | 0 | + | 20 | *Q | ||||||
| Dc: P = | 18000 | - | 40 | *D | Pus = | |||||
| Pc = | ||||||||||
| What is the no-trade price of robots for each country? | ||||||||||
| 4.b | Derive the Export Supply and the Import Demand for both | |||||||||
| countries, to determine the free trade (no tariff) price and quantity | Pw = | |||||||||
| of imports and exports, so that Dm = Qx. | Dm=Qx= | |||||||||
| 4.c | The US imposes a tariff of t = $600 per professor robot. What is the | Pw = | ||||||||
| new Price per robot in the US (Pm) and in China (Px), where Pm=Px+t, | Px+t = Pm = | |||||||||
| and the new quantity of imports and exports, Dm = Qx? | Dm=Qx= | |||||||||
| 4.d | What is the Dead Weight Loss (-), the Terms of Trade (ToT) Gain (+), and | |||||||||
| their sum, the net Benefit (+) or Loss (-) of this tariff policy to the US? | DWL= | |||||||||
| (That is,with a net benefit the sum of changes will be positive, and | ToT Gain = | |||||||||
| with a net Loss they will be negative.) | Net Change = | |||||||||
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MF&T _AD763_SB1
DON'T MOVE MATERIAL ON THE PAGE. PUT ANSWERS IN BOXES. YOUR CALCULATION WORK SHOULD GO TO THE
RIGHT
OF COLUMN O.
COMPARATIVE ADVANTAGE
1
Russia can produce a maximum of
or else 0 Software programs and a maximum of
China can produce a maximum of
